Scottish Friendly calls for extra pension warnings

Scottish Friendly has called for the issue of formal ‘think again’ warnings to be issued to customers wishing to cash in all or part of their pension when the new pension freedoms take effect next month.

The savings and ISA provider says that guidance alone from bodies such as Pension Wise and Citizens Advice is not enough to prevent people putting their hard-earned pension savings at risk.

A spokesman for Scottish Friendly, said: “Like many in the industry, we have concerns that people will make investment decisions that could fall flat and ultimately leave pensioners without any source of income. Those retirees planning to invest into property are of particular concern as the volatile nature of the market could leave thousands of people penniless if the housing bubble was to burst.

“The prospect of considerable numbers of people using their pension to buy property for buy-to-let purposes is a very real and present danger to them and the wider long term economy. The industry needs to be doing a lot more to alert people to the risks they could be taking before they take the decision to withdraw all their money to fund this type of investment.”

It added “For those with modest pensions, putting all their money into property represents a real risk compared to those with larger pots who could use property as part of a diversified portfolio. Putting all their money into property means they would in effect be running a business, they’d have no access to their capital and there is no certainty that their property will generate the income they originally envisaged. Unlike regulated investments where customers are protected by Treating Customers Fairly rules, investing in buy-to-let property moves outside this protection.

“It is good that pensioners have access to guidance from such bodies as Citizens Advice and Pension Wise, but this relies on the individual reaching out to examine their options. A more formalised approach also needs to be adopted that ensures that all retirees are alert to the potential downside of drawing down all or part of their pension savings and in particular the risks of using buy-to-let for retirement income.”